Question

You buy a ten-year bond that has a 6.75% current yield and a 5.00% coupon (paid annually). In one year, promised yields to maturity have fallen to 5.75%. What is your holding-period return?

		15.85%
		13.53%
		8.31%
		14.02%

Answer 1

Initial purchase price

cpn = 1,000 * 0.05 = 50

r = 0.0675

n = 10

Price after one year

cpn = 1,000 * 0.05 = 50

r = 0.0575

n = 9

Holding period return, HPR = (Price now - purchase price + coupon received)/Purchase price

HPR = (948.4276254596 - 875.6542499801 + 50)/875.6542499801

HPR = 0.1402075939

HPR = 14.02%

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